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NVIDIA Corporation's Staggering Growth in 4 Charts

By Danny Vena - Feb 15, 2017 at 6:30PM

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This dominant tech company is expanding its addressable market, as its best-in-class graphics processing units are the top choice in gaming, deep learning, and autonomous vehicles.

NVIDIA (NVDA -5.26%), the leader in the graphics processing industry, has been growing like gangbusters. Its performance over the last several years has been nothing short of stunning, and investors will rightly want to know if this growth can continue. Below, we look at several key financial metrics to provide insight into the company's future potential.

Three NVIDIA graphics processing units.

NVIDIA's GPU's driving the trend of AI innovation. Image source: NVIDIA Corporation.

1. Revenue

Revenue gains were the largest driver of results. In its recent earnings release, NVIDIA announced record quarterly revenue of $2.17 billion, which grew 55% over the prior-year quarter, as well as record full-year revenue of $6.91 billion, up 38% over the prior period. 

Several factors contributed to this impressive growth. Gaming revenue achieved a record $1.35 billion as a result of gamers upgrading to the company's recently released Pascal-based graphics processing units (GPUs), while its GTX 1050 GPU's found greater penetration in notebooks, furthering NVIDIA's success in virtual reality and eSports. 

Bar chart illustrating NVIDIA growth by revenue category.

Record full-year revenue in each major market platform. Data source: NVIDIA. Chart by author.

The Datacenter segment was another significant revenue driver, tripling to $296 million over the prior-year quarter. While this is currently still a small contributor to the top line, the company sees this as a significant opportunity thanks to widespread use of its GPUs in artificial intelligence (AI) applications by big tech companies. Deep learning, a discipline of AI, has produced great strides in image recognition and voice processing, and NVIDIA sees adoption in additional industries contributing to future growth. As the result of these applications, NVIDIA anticipates an increase in the total addressable market for its products. 

2. Margins

NVIDIA saw gross margins hit a record 60% in its most recent quarter. It attributes this to its platform approach of stacking GPUs and optimizing them for specific applications, such as gaming, cloud computing, and deep learning. The company is particularly excited about its platform's use in the areas of autonomous driving, cancer detection, and weather prediction. This has resulted in market expansion for its products. Operating margins also achieved record results of 30%. NVIDIA expects margins to stay at these higher rates in the coming quarter. 

NVDA Gross Profit Margin (Quarterly) Chart

Data by YCharts.

Revenue gains and expanding margins have also resulted in record net income of $655 million, up 216% year-over-year, and clocking in at $1.67 billion for the full year, up 171%. Income growth over the last couple of years has been striking. 

3. Research and development

This type of growth, particularly in expanding its addressable market, requires investment. NVIDIA has been increasing its spending on research and development, raising the tally to $394 million in its most recent quarter, up from $344 million in the prior-year quarter. For the full year, the company spent $1.46 billion, up about 10% year-over-year. While this spending has been steadily increasing, it has fallen as a percentage of total revenue. The company expects to continue high levels of investment to capture future opportunities. 

NVDA R&D to Revenue (TTM) Chart

Data by YCharts.

4. Cash flow

Free cash flow is the money available after a company has covered its operating expenses and capital spending and is typically used to fund share repurchases and pay dividends. NVIDIA continues to excel here as free cash flow for the quarter was $669 million, compared to $495 million in the prior year quarter. NVIDIA has used $1 billion of its cash over the past year returning capital to shareholders (repurchasing $739 million of shares and paying $261 million in dividends).

Free cash flow chart for previous eight quarters.

Free cash flow generation accelerates. Data source: NVIDIA. Chart by author.

Final thoughts

NVIDIA continues to deliver standout results. The company sees this continuing as a result of strong demand in gaming, an expanding addressable market, and increasing adoption of its GPUs for use in AI applications. If NVIDIA can continue to leverage these opportunities, investors stand to reap the rewards.

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